By Harry Scoffin
One of the most powerful interventions in the leasehold scandal was when Nationwide publicly stated it would not be lending on doubling ground rent properties.
It made overt what LKP knew perfectly well was happening in the market: that lenders were getting decidedly windy about their exposure to new-build toxic leasehold assets and sales were repeatedly falling through.
So, you would expect some powerful analysis of the issue by Matthew Jump, of UK Finance, as the Council of Mortgage Lenders is now known.
Leasehold has a long history in this country but in recent years it has become clear that some leaseholders are getting a less than perfect deal.
Not a bit of it. Instead of addressing consumers’ concerns – and those of MPs – UK Finance is still cosying up to the sector and plc house builders.
In a tetchy blog post slipped out on Friday, Mr Jupp mounts a woeful defence of the leasehold system.
He maintains that, in spite of the evidence, leasehold works well and does not require major reform.
Leasehold campaigners have expressed fury at suggestions put to MPs that the leasehold market is not in need of major reform. On Tuesday, Matthew Jupp, head of mortgages at trade body UK Financial, told the Housing, Communities and Local Government Committee that the leasehold market “as a whole works fairly well”.
Still, there is really no excuse for UK Finance’s principal of mortgages policy to be putting their name to such flannel.
Mr Jupp shows a great reverence for leasehold, citing its “long history in this country”. Phwoar!
Freeholders and the other vested interests in the sector love to argue leasehold’s virility as a way of undermining calls for England and Wales to adopt commonhold title, which makes flat living viable around the world without the need for a parasitic landlord class. Readers will know that leasehold has persisted because it remains an awfully lucrative form of residential tenure for developers and the faceless investors who hoover up the freeholds and ground rent portfolios. There is no genuine consumer enthusiasm.
Mr Jupp suggests that 12,500 leaseholders are affected by the issue of 10-year ground rent doublers. This number conveniently excludes those with leases that have clauses where the ground rent is set to double every 15 years.
LKP notes that this 12,500 figure is often being thrown around like confetti. It’s infinitely more flattering than the 100,000 we use to account for those leaseholders impacted by ground rents which exceed 0.1% of the property price.
This should be Mr Jupp’s business. Barclays, for example, confirmed last year that its policy means it must now pore over leases where the ground rent doubler exceeds 0.1 per cent of the current market value. The bank is, therefore, inclined to refuse to lend on these properties. (Ground rents above 0.1 per cent are par for the course in the retirement sector, but these leases are not bought on mortgages.)
Towards the end of the piece, Mr Jupp warns against a long-term shift to commonhold property ownership:
“The last area we need to consider is how the leasehold market functions more generally. On the whole mortgage lenders believe it works well. There are around four million leasehold properties in England and we don’t think a complete revolution in property tenure in this country is desirable. It is possible that too much criticism of leasehold could lead to a two-tier market which would not be beneficial for current leaseholders.”
Although no one yearns for major property devaluation of existing leasehold stock, we believe the line about having “a two-tier market” is something straight out of the freeholders’ playbook.
Commonhold tenure for flats would be a much better system for the lenders. Without a third-party, there would be less uncertainty. The absence of forfeiture under commonhold would mean greater security for the banks.
The risks associated with lending on short leases would be gone. Oddly enough, Mr Jupp is silent about this.
Surely his organisation should be alerting banks to the thousands, if not tens of thousands, of leases that have already plummeted below the 80-year mark? Never mind the leaseholders, are they going to get their money back?
There is also a big question mark hanging over the insurance of leasehold blocks. Freeholders currently have responsibility for arranging this.
In the case of a leasehold flat, where the landlord has a loan against the building and the lessee a mortgage against their particular flat, are both lenders lending against the same value? And worse, what would happen if anything like a fire or terrorist attack destroyed that property? Whose loan has priority against any insurance claim?
Why is UK Finance not grappling with these questions?
Why is it intensely relaxed about its members lending on what are essentially tenancy agreements?
Come on, Mr Jupp, face down the vested interests by backing commonhold and all will be forgiven.